Billionaire Henry Sy Sr., the richest person in the Philippines, will start to develop apartments, offices and hotels around his shopping malls to maximize the value of his property holdings in the face of similar moves by competitors.
Fifteen of 50 shopping malls now owned by Sy’s SM Prime Holdings Inc. are on land large enough for high-density, mixed-used development, Executive Vice President Jeffrey Lim, 53, said in an interview in Manila on Monday.
Depending on demand, five so-called townships will be built in two years and about 10 more over five years, he said.
The townships will be part of SM Prime’s P500-billion ($11-billion) expansion from now through 2019, Lim added. They will pit the largest Philippine mall developer against Ayala Land Inc. and
Megaworld Corp., the biggest builders of mixed-used projects.
Ayala and Megaworld have been building townships for several years, capitalizing on the rising office-space needs of outsourcing companies, while higher remittances from Filipinos abroad have fueled home purchases.
“SM Prime has plenty of re-sources around its malls, and these will become expensive parking lots if they don’t do this,” said Richard Laneda, an analyst at COL Financial Group Inc., who has a buy rating on the company’s stock. “If they don’t do this, the market will go to the other developers.”
The publicly held Philippine builders’ push for townships in and out of Manila boosted its capital spending to a record P331 billion, according to broker Savills Plc. Congestion in Metro Manila is driving demand in these
microdistricts, it said.
‘On its toes’
Remittances climbed 5.8 percent to a record $24.3 billion last year. Money transfers from Filipinos living and working overseas account for about 10 percent of the nation’s economy, the World Bank estimates.
“The live-work-play lifestyle in these townships have resulted in a lot of success for some major developers,” Michael McCullough,
Manila-based managing director at KMC MAG Group Inc., the local associate of Savills, said in mid-March.
SM Prime “has to be on its toes to continue to have the upper hand,” said Allan Yu, first vice president at Manila- based Metropolitan Bank & Trust Co. He helps manage about $7.5 billion, including SM Prime shares. “They have to upgrade their existing assets, not just expand their portfolio.”
Growing land bank
SM Prime has gained 37 percent over the last year, exceeding the 30-percent gain in Megaworld and the 29-percent advance in Ayala Land. The Philippine Stock Exchange index has added 24 percent in that period, and the Bloomberg Asia Pacific Real Estate Index 24 percent. SM Prime and the Philippine index were little changed at 10:39 a.m. local time.
Net income will climb 19 percent this year to P21.87 billion, according to median of 13 analyst estimates compiled by Bloomberg.
The company’s land bank stands at 900 hectares (2,224 acres), Lim said. Before Sy pooled his property assets into SM Prime in 2013, the mall builder’s land bank was about 120 hectares, Lim said.
Sy, who is 90, has an estimated net worth of $13.4 billion, according to the Bloomberg Billionaires Index. He migrated to the Philippines from China in 1936 and started selling rice, sardines and soap in his father’s Manila store. He opened a shoe store in 1948, and eventually built his business empire in the 1980s by opening malls.
Manila reclamation
SM Prime plans to spend P70 billion this year to build malls and homes. After constructing three to four malls a year, SM Prime has said it plans to open as many as five in 2015. It plans to start five new residential projects this year and expand existing developments if there is demand As part of its strategy for 2015, SM Prime aims to sell as many as 14,000 homes, valued at about P3 million each, Lim said.
There is no supply glut in that portion of the market, he said. The company gets about a third of revenue from home sales.
For the longer term, the company has applied to reclaim 600 hectares of land along the Manila Bay and spend about P100 billion to turn the property into a master-planned integrated and mixed-use community.
The development is adjacent to the group’s Mall of Asia complex and the strip of four integrated casino resorts that will make up the Manila Entertainment City.
That plan, which has won permission from the city governments of Pasay and Parañaque, will be among the single biggest contiguous developments in Manila if approved by the nation’s economic-planning agency.
“A number of our malls have excess land, and these are just there untouched,” Lim said. “Our thrust is to maximize the synergies of integrated development. Building lifestyle cities will maximize the potential of our properties.”